If the economy is at point a, the appropriate monetary policy by the federal reserve would be to raise interest rate.
The central bank of a country uses a set of instruments called monetary policy to regulate the total amount of money in circulation, foster economic expansion, and implement measures like adjusting interest rates and altering bank reserve requirements.
A nation's monetary policy is a set of measures taken to promote economic growth and manage its total money supply.
Changing bank reserves and changing borrowing costs are examples of fiscal policy strategies.
Typically, monetary policy is categorized as either expansionary or contractionary.
The diagram is given below:
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